Boatloads of meat

James Herring is CEO of Friona
Industries, the fourth biggest cattle feeder in the nation with four Texas
Panhandle feedlots of 275,000-head capacity combined. He and the rest of the
U.S. livestock industry remain corn and soybean farmers’ top customers but not
by a lot. Livestock will chew through 5.25 billion bushels of corn this year.
Ethanol will ferment 4.7 billion (with 32% fed as distillers’ grains).

Yet Herring doesn’t feel
part of a growth industry. Cattle feeding stands between a shrinking cow herd,
with the smallest calf crop since 1950 this year, and corn made more expensive
by disappointing 2010 yields.

“Higher prices are going to
make it more difficult for the livestock producer,” he says. Herring blames
ethanol’s need for grain. It makes supplies so tight that a slight change – say
China importing just 1% of its corn – sparks frenzy in Chicago. It’s hard on
cow-calf ranchers, Herring says. “The volatility gets too big for them and the
rewards are too small, and they quit the business.”

So many beef, pork, and
poultry producers quit or cut back in the past two years that meat prices have
rebounded to chase tighter supplies. Positive feeding margins have returned.
Enough so that USDA and analysts had looked for some livestock production to
increase slightly in calendar 2011 over 2010, says ag economist Chris Hurt at
Purdue. Experts forecast 2% expansion in pork, 3% in broilers, and 1.7% in turkeys.
Struggling beef production was expected to drop 2%. Now, Hurt thinks pork will
stay flat and poultry will expand more slowly.

“Who’s
going to really scream ‘ouch’ when corn goes to $4.50? I can’t really find
anyone,” he says. “Corn at $5 is not going to force the pork industry into a
loss or the poultry industry into a loss.” Dairy farmers, who’ve kept milk
production high, may suffer. So will cow-calf producers. “Again, I don’t see $5
corn throwing any of the livestock industry into a panic. What it does say is, ‘Forget
that expansion,’” he says.

Exports may be a leading
indicator of recovery in U.S. livestock. By August 2010, beef exports jumped 25%
over the same months in 2009, hitting a value of $2.19 billion. That’s nearly
even with the peak set in 2003, before the discovery of BSE (bovine spongiform
encephalopathy) decimated exports to Asia. And pork exports, worth $2.75 billion
through July, fell just shy of a record pace set in 2008, when exports used
about 20% of U.S. production. In 2010, beef exports will be about 8% of U.S.
production, says Rachel Johnson, a USDA-Economic Research Service economist and
coordinator of Livestock, Dairy, and Poultry Outlook reports.

Corn Ethanol is Decimating the Best Long-Term CustHarold Smith 02/07/2011 @ 3:09pm
This is the scenario I see playing out. Step (1) Corn ethanol destroys the U.S. livestock sector, maybe even causing it to move offshore as livestock firms continue to go bankrupt -- this step is well under way. Step (2) Corn ethanol is replaced by cellulosic or other non-food sources as the largest ethanol feedstock -- this step is just starting Step (3) Prices of corn and all grains that were "pushed out" by corn ethanol (like soybeans) drop Step (4) World interest rates rise Step (5) MAJOR FARM CRISES as the two largest domestic customers (livestock and corn ethanol) have been hurt badly or eliminated, grain prices have been hammered and cost of capital is through the roof. When this happens do you think Jeff Broin, RFA, Growth Energy, NCGA and Purdue will bail us out! People save your money. It is hard to imagine it now, but we are heading toward a crises that will allow cash buyers to scoop up farm property at incredibly low prices. They said it was a "new era" in the late 70's too. Remember the early 80's? This time it's different, farmers have less debt. Have you seen the latest Fed data showing farm debt is through the roof. I have seen this movie before and I wish SF, Purdue and others would do a better job of warning people rather than pumping (no pun intended) corn ethanol hype all the time.